Arbitration as a dispute resolution method has continued to grow and is still to date the most reliable system globally for resolving disputes. International arbitration, in particular, has seen different disputing parties across different jurisdictions have their grievances solved in a fair way, generally free from state politics and sentiments.
However, while international arbitration has continued to grow as a popular resolution method with enforceability similar to that of state courts, it is not the only dispute resolution method. While not as enforceable and binding as international arbitration, other methods exist and are sometimes implemented alongside arbitration. The other types of dispute resolution are usually categorized as Alternative Dispute Resolution (ADR)
ADR and Multi-Tier Agreements in International Arbitration
ADR is generally a resolution method that includes Negotiation, mediation, and expert determination, and a list of other systems and mechanisms. ADR and arbitration are usually different as the former is voluntary and can be rejected by the disputing parties, while arbitration is generally binding, final, and cannot be overturned except in extremely rare cases.
However, it is possible for two parties coming into an international commercial contract to include both ADR and Arbitration in their contracts as their resolution method instead of choosing just arbitration. When this happens, the established dispute resolution clause is known as Multi-Tier Agreements in International Arbitration.
Multi-Tier Agreements in International Arbitration is not an unpopular dispute resolution clause and is usually entered by parties to counter the cost that a pure arbitration clause would cause. One of the biggest criticisms of international arbitration is the cost and challenge of issuing arbitral awards, which make pure arbitration clause less desirable. Parties going into a contract would prefer a faster alternative.
ADR methods are usually less costly, faster, efficient and the decisions reached are willingly accepted by the parties, making them much easier to accept compared to arbitration. Parties who go into multi-tier agreements usually aim to resolve their disputes voluntarily, fast, and less costly. Both parties will only agree to go to court when all pre-arbitration ADRs fail to yield any compromise.
There are different types of ADR methods, and the parties going into a multi-tier agreement will unanimously decide how many ADRs they choose to implement in the contract. The contract will only be considered Multi-tier if at least two ADR methods are chosen and both parties. Also, the contracting parties must follow each ADR method sequentially, starting from the least expensive and least powerful to the most influential ADR in the contract.
When all ADR methods embedded in the contract, have been exhausted, and the dispute is yet to be fully resolved, both or one of the parties would have to move effect the arbitration clause for resolving the disputes. Generally, different ADR methods can be included in a multi-tier agreement contract, but some are more popular than others. The popular ADRs include Negotiation, Mediation, and Expert determination.
Enforcement and multi-tier agreements in international arbitration
Unlike the usual arbitration clause international contracts, the multi-tier arbitration clause has significantly different enforceability due to its nature. The multi-tier arbitration agreement can be easily waived aside by a tribunal when a party decides to seek its enforcement without following the agreements in the clause.
One of the issues of enforcing the arbitration agreement is when the party seeking such enforcement is challenged by the counterparty with the argument that all other alternative dispute resolution methods embedded in the contract have not been followed. For example, the aggrieved party could put up a challenge that all ADR before the arbitration clause initiation were not followed. The tribunal will then decide if the arbitration request by the applying party is honored or if the multi-tier agreement is ignored.
Generally, a tribunal would desire that both parties implement all possible methods before choosing to effect the arbitration clause.
Usually, when arbitration’s enforceability is considered, most of the questions are on the challenge of issuing arbitral awards. However, there are several grounds on which an arbitration request may not stand, and one of such is if the disputing parties are involved in a multi-tier agreement clause.
Multi-Tier Agreements in International Arbitration are implementing Alternative Dispute Resolution (ADR) and Arbitration in a contract. This type of contract mandates both parties involved to pursue different resolution methods during disputes until the very last intervention being the Arbitral tribunal. In a situation where a party tries to effect the arbitration clause for dispute resolution without first following all ADR schemes in the contract, the counterparty could request the tribunal to reject the submission and order the applying party to follow all agreements outlined in the Multi-tier clause.
It is, however, possible for a tribunal to enforce the arbitration clause even If an opposing party believes all other ADR methods have not been explored. Hence a multi-tier agreement can go anyway as it depends on the case and the position of the disputing parties and the tribunal.
If your firm is looking to go into Multi-Tier Agreements in International Arbitration, it is extremely essential that you get expert advice to get the best out of such an agreement.
Several arbitrators and arbitration firms offer expert advice on Multi-tier agreements and their enforceability and getting one of such top institutions could go a long way in helping you get a lead during possible disputes.
Rattsakuten is a top arbitration firm with a reputation for housing some of the best arbitration professionals in the system. You can contact the firm to help you get a great defense in Multi-tier agreement-related disputes.
Rattsakuten is a leading law firm focused on Commercial Arbitration and Dispute Resolution. Based in Sweden, Rattsakuten handles dispute resolution and Arbitration matters before the SCC (Swedish Chamber of Commerce), ICC, HKIAC, and several other Arbitration tribunals.